Airbnb Case Study

smaQ1: Airbnb is part of the new sharing economy, what are the benefits and risks of this new economy?

“What’s mine is yours, for a fee”: A shared economy in essence helps facilitate the renting of goods and services that would otherwise lie idle, through collaborative, peer to peer consumption. The concept of sharing is old but the internet has made this concept into a profitable business model. One can track the origins of this economy as early as 1995 with marketplace websites like EBay and Craigslist but the last 10 years have been nothing short of spectacular with the emergence of “unicorns” like Airbnb and Uber. Airbnb today, averages 425,000 guests per night, nearly 22% more than Hilton Worldwide^[1].

“The consumer is king”: Companies applying the notions of a shared economy are seeking utopian outputs: absolute transparency, affordable prices, social connectedness, claiming to be greener. According to PwC’s Sharing Economy report, 78% of consumers agreed that the sharing economy reduces waste and is better for our environment. A disruptive economy can definitely offer substantial benefits, such as:

• Creation of business opportunities: You can now rent your empty house or work as a driver in your spare time. These opportunities are positively contributing to our economy.
• Building social capital: Not only are there increasingly valuable relationship between a consumer and good/service provider but there is also an opportunity to enhance these connections based on reviews and constant feedback.
• Lower costs: Low barriers to entry allows more players fiercely competing for customers patronage without any of them necessarily claiming market leadership. This forces players to deploy innovative ways of keeping cost lower than traditional business, so as to pass on this cost savings to customers in reduced prices.

“Disruptive innovation comes at a price”: Over the years, governments have defined regulations that protects consumers, workers, services/goods providers etc. However, advent of shared economy tries to circumvent these regulations by causing multiple issues, such as:

• Labor: There are two aspects: 1. People providing services should do so as a part-time service with the income from the activity not being the primary source. For drivers enrolled with “Cabify” this might not be true. 2. Many view sharing economy as exploiting labor by not providing workers adequate salary and other protections such as employment benefits
• Taxes and Regulations Evasion: There is a common law that prohibits renters from subletting their apartments, but Airbnb does not check this when host list their room/house thereby condoning its user’s evasion of property regulations. Also, traditional companies competing with shared economy are captured in tax net while shared service users/host can escape this because of their unconventional operating model. This sentiment is however refuted by David Hantman, Airbnb’s head of global public policy - He stated “Until services like Airbnb came along, many people weren’t paying taxes if they rented out rooms to travelers, We’re helping to increase transparency.”^[2] This controversial statement appears self contradictory because Airbnb users don’t pay taxes.
• Consumer Protection: Physical checks to safeguard the safety of renters during emergencies e.g. fire escapes are not compulsory, putting consumers at risk. There is also a concern that service providers are discriminating by providing services only to customers who at the minimum need to have a smartphone to use the services offered.
• Local unions undermined: The labor unions protecting the rights of employees at local companies are jeopardized by the fast expanding, competitive global companies leading to underutilization of resource/unemployment in the traditional service providers.

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Q 2: Is there anything Airbnb could have done to avoid the "EJ" incident? To reduce the aftermath?
"I do believe that maybe 97% of Airbnb.com's users are good and honest people. Unfortunately, I got the other 3%. Someone was bound to eventually, I suppose, and there will be others" EJ wrote^[3]. 3% of 2 million is 60,000 which is a huge number of people to put at risk; our group has put down the following points that Airbnb could have implemented:

• Technologic tools: More sophisticated reviewing systems like the ones found in TripAdvisor could increase the amount and the quality of the information available for hosts to make better decisions. Uprating and downgrading reviews (E.g. Amazon) based on the rater’s credibility is another good addition. To do so, companies must offer rewards to frequent reviewers that make decisive contributions. These rewards could be translated into special bonus & loyalty programs, increasing prices for bad reviewees, preferential spots in the search engine etc. The reviews could also be improved by being translated in the user's language automatically and being able to support pictures from users. The downside of this is that if not implemented and communicated correctly it could affect the system’s functionality, users’ perception and might be expensive to develop.

• Better customer service and policies: The EJ incident brought to light how a company as big as Airbnb does not have disaster recovery policies. Based on the large number of users of the service, 24-hour customer support centers are a must along with educating hosts of safety policies. Instead of forcing hosts to reply in 24 hours of an offer the focus should be on qualitative selections with preference to frequent customers with good previous evaluations. These measures could affect the arrival of new customers to the platform, but since it’s a platform that is already well-known and widely used, this effect could be overcome. Guaranteed insurance to hosts in case of unpleasant happenings as a part of policy would also have avoided EJ’s negative response.
• Prescreening both hosts and guests: A pre screening process could aid security and trust in the Airbnb’s users. This will, however; affect costs and time for the enrollment process of new users affecting the current business model and margins.
  

‘We have really screwed things up”^[4]: This statement is part of the letter released by Brian Chesky founder of Airbnb post the EJ incident. This article was released by Airbnb more than one month later after the incident and hence attracted a lot of flak on social media. Beyond the suggestion of immediate response with action steps outlined to such events, these are possible steps to avoid the aftermath

• Short Term: Launch of public relation and social media activities in order to reduce the damage to their image. Immediate support and personally responding to EJ could have averted negative media altogether. Writing to all hosts assuring them of strong actions towards misbehaving users would also have appeased the hosts community preventing more incidents being discussed in social media. Launching insurance to protect its customers from similar situations and making up for damages is also a solution.
• Long Term: Training and equipping customer support staff for timely solutions that address the problem customer’s issue taking into account the materiality of the event. Designing standard operating procedures (SOP’s) to reduce response time. SOP’s could be designed for the customer support staff to honor a Service Level Agreement (SLA) involving the most common performance metrics such as First-Call Resolution and Time Service Factor among others. SOP could also be improved thru intelligent CRM systems that can detect automatically abnormal situations -either in Airbnb’s platform or in media and social media- classify them by severity and take automatic actions.

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Q3: How should Airbnb further facilitate trust between renters and hosts?